Random thoughts of a Birmingham-based political junkie and party hack, Labour member and activist. And a Councillor for the City of Birmingham, representing Acocks Green ward.

Thursday, November 27, 2008

Opening salvoes from Darling

On Monday, Alistair Darling fired off the first rounds in the next general election campaign. Now, our dear Chancellor isn't the world's most inspiring speaker, but the text is striking for the change of course that it sets.

The package announced is all about restoring some confidence in the economy and putting a bit of money back into the pockets of the ordinary man and woman - targetted at the lowest earners in the economy. He's explained how it will all be repaid - so repeating the Tory campaign around 'Labour's Tax Bombshell' will be at least partially neutralised. For the first time in years, we have a real gap between the parties over taxation. The Tories are promising unfunded tax cuts of limited reach and are now committed to reducing government spending, while Labour has put forward detailed plans ready for dissection in an attempt to add some oil to the economic gearbox.

Labour has been open about this - these are short-term measures to cushion the recession and perhaps help a gentle up turn and we will all have to bear the cost of them once the recovery is properly under way. It isn't a massive jolt to the economy - which is probably a good thing, as we don't want to trigger a short term, destructive boom.

The big shift is that those who have benefitted most from the growth of the past decade, the big earners, will pay a bit more. The pips are hardly going to squeak - the bill for those earning over £150,000 a year will amount to £3,000. A balance always has to be struck between raising tax and encouraging these taxpayers to run to their accountants. For the first time in years, the only major party promising to tax those who have the most a little bit more will be Labour, as even the Liberal Democrats abandoned that policy themselves a few months ago. Redistribution is back on the agenda - although it has been going on very quietly for most of the decade. Even the VAT reduction will benefit low earners more, as they spend a large share of their income.

The Tories have again found themselves wrong-footed, having to rely on claims that those earning over £19,000 will be worse off. You can't argue with the fact that they will be - by around £3 a year, which will in many cases outweighed by additional payments. Even with the increases in NI payments from April 2011, the bottom 30% of earners will still be better off across the board. In contrast, the Tory rescue package - which offered NI holidays to firms recruiting new staff would only help those firms actually able to justify the costs of new employees, which might be challenging in the current economic environment. To be honest, since the massive flaw in the Thatcherite free market system was exposed by the near collapse of the global banking system - prompting those dashing, independent, light-touch regulation business people to suddenly run to government begging for help - the Tories have floundered. They don't seem to understand that the rules of the game have changed.

Even as he berates Darling for increasing government borrowing, Osborne has proposed offering even more government money to underwrite loans to businesses, without any indication of the risk to which the taxpayer might be exposed.

The whole package is remarkably brave - nobody knows whether it will work and I'm not sure how success will be measured. Every redundancy or business collapse will be cited as proof of the failure of the policy, but we'll never know how bad it would be otherwise. But the risks of inaction vastly outweigh the risks of action. Do nothing is not an option here - despite the Tories bleating that this is all wrong and that they wouldn't have started from here anyway. My one doubt is over the tax rise on fuel, which will be a permanent one - that may be a mistake.

While this will provide a welcome boost for different areas of the economy, it is also the first blast of the next manifesto. It paints the Tories into the corner of demanding tax cuts for their rich friends. Even the new moderate that is Portillo was fulminating on This Week tonight that a government taking half someone's earnings is immoral, ignoring the simple mathematical fact that HMRC will only collect 45% of what you earn over the £150k point - not good form for a former Treasury minister.

Still, given that their previous flagship policy was their billion-pound tax break for a few thousand rich families (including a number of the Tory front bench), we shouldn't expect them to give a damn about the ordinary people, should we?